During the final days of the Bush Administration, the United States Department of Labor Wage and Hour Division (“DOL”), issued 40 opinion letters, more than it had issued in the prior two years. After taking office, the Obama Administration put a hold on 20 of those opinions. Although all letters are still listed on the Department of Labor’s website, there is a notation as to those opinion letters which have have been withdrawn “for further consideration”. In this article I’ll discuss several opinion letters which were not withdrawn. This article deals with mandatory exempt status for salaried employees.
Deductions from Salaries of Exempt Employees
Mandatory Vacation During Shutdown
With respect to employees classified as exempt under the so-called white collar exemptions contained in Section 13(a)(1) of the Fair Labor Standards Act, the Department of Labor issued three opinion letters which may be of interest. In FLSA 2009-2, DOL discussed whether an employer could require exempt employees to use accrued vacation time during a plant shutdown of less than a work week, and reduce the employee’s salary by the amount of the vacation time used without affecting the employee’s exempt status. DOL opined that an employer could indeed require exempt employees to use accrued vacation time for any absence, including one resulting from a plant shutdown, without affecting their exempt status, so long as the employee received for that week, a payment in the amount equal to their guaranteed salary, which must be at least $455 per week. In so holding, DOL noted that since employers were not required under the FLSA to provide vacation time to employees, there was no prohibition on employers giving vacation time and later requiring employees to use that time on specific days, whether for a full or partial days absence just as long as the employee still received for that week a total payment equal to their guaranteed salary.
Reduced Hours – Lack of Work
In FLSA 2009-18, DOL was asked to advise whether an employer could require salary exempt employees to stay home or leave work early during periods of insufficient work and to deduct the non-work time from the employees paid time off (PTO) account. In addition, the employer asked whether, if an employee’s PTO account was exhausted or insufficient, could that employer then reduce the employees salary below the $455 minimum.
Initially, DOL noted that in order to qualify as exempt employees, most executive, administrative and professional employees must be paid on a salary basis. As a general rule, as long as the employee was ready, able, and willing to perform their job, an employer could not reduce their salary because of the variation in the number of hours worked or the quantity or quality of the work performed during the pay period. Thus, an employee would not be regarded as being paid on a salary basis if the deductions from their predetermined compensation were made for absences occasioned by the employer or the operating requirements of the business. However, employers could make deductions for absences taken from the exempt employee’s leave bank so long as the employees weekly salary was not reduced. Thus, if an exempt employee receives their full predetermined salary through a combination of salary and payments from the leave bank, regardless of whether they are in full-day increments or not, their exempt status is not affected.
If the employer requires an exempt employee to work less than a full week the employer must pay the employee’s full salary if: (1) the employer does not have a bona fide benefits plan such as PTO or vacation; (2) the employee has no accrued benefits in a leave bank; (3) the employee has limited accrued benefits in their leave bank such that reducing the accrued leave will result in a negative balance; or (4) the employee has already exhausted all of the benefits in their leave bank and thus has a negative balance.
DOL further noted that an employer could reduce an exempt employee’s salary and still maintain exempt status so long as the salary reduction was of a permanent nature and, the employee still received the required minimum of $455 per week.
Mandatory “Voluntary” Time Off
In the third opinion covering salaried employees, the employer wanted to ask employees to take voluntary time off due to short term reduction in business volumes. Moreover, in the event there were insufficient volunteers, the employer would require less senior employees to take mandatory time off. In either case, employees could use accrued paid leave or take unpaid leave. If the employee elected not to use accrued paid leave, or had insufficient accrued leave available to cover either the voluntary or mandatory time off, the employer would reduce the employee’s salary equal to the amount of time taken. If the time taken lasted an entire work week, the employee would not be paid any salary for that pay period. In FLSA opinion 2009-14, DOL concluded that where employees took unpaid leave or had no paid leave to offset their salary reduction, the proposed reductions were precisely the circumstances the salary basis requirement of the FLSA was intended to preclude. In another words, the employer could not reduce an employee’s salary by the amount of unpaid time taken when that time lasted less than an entire work week. An employer could reduce an employee’s salary for a voluntary time taken of increments of at least a full day, however, the employee’s decision must be truly voluntary, and not based upon business exigencies, as was the case here.
The link to DOL’s opinion letters is http://www.dol.gov/whd/opinion/flsa.htm.
Please be sure to watch for part two of this article, which deals with non-discretionary safety bonuses and overtime, as well as non-profits use of employee leasing firms.